Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 07-15-2021, 08:45 AM   #41
Thinks s/he gets paid by the post
 
Join Date: Aug 2014
Location: Chicago West Burbs
Posts: 1,857
Quote:
Originally Posted by Exchme View Post
Let me start with my preface that net worth at death is a useful measure if you are giving your tax deferred money to charity as the assets transfer without taxes. But I am willing money to individuals and am interested in estate planning that will optimize their assets after heir liquidation, so that's the measure I used, rather than unadjusted NW. ..... .

I have a related question regarding your "optimizing" one's heirs' assets. Doesn't this require you entering their current financial data into some sort of spreadsheet and knowing their plans? I have always said that anything left is a gift. Given that and our plan goes to age 100, there is a very high likelihood that our estate will have some dollars left to distribute. I would not want to get into their shorts now in order to "optimize" their financial assets that they may get anytime between tomorrow to 30 years in the future. Our situation is somewhat complicated. One is a gov't employee and the other is a teacher, Their retirement programs are foreign to me. Plus their spouses have traditional jobs under SS. I am unfamiliar with the detailed workings of their retirement plans, tax situations or their spending budgets and have no interest in doing so. It is hard enough planning/managing our own situation.

How do you do it? Just curious.
CRLLS is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-20-2021, 08:21 PM   #42
Recycles dryer sheets
 
Join Date: Jan 2017
Location: TX
Posts: 92
Quote:
Originally Posted by GTFan View Post
One important thing to consider about conversions is how it impacts your ACA subsidies, assuming you are using this insurance. Makes the calc even more complicated.
Yes it does.

Quote:
Originally Posted by Exchme View Post
Yes, I have a window of a couple years where Pralana Gold suggests I go for ACA subsidies. That restricts the amount of conversions that could be done in the 22% bracket, but there is still room in the 24% bracket for conversions in other years and the analysis says don't bother to use it. I probably will go into the 24% bracket this year and next before thinking about trying to get subsidies the following couple of years, regardless of the analysis. The future has a lot of uncertainties and I want to get the Roth off to a good start.

Quote:
Originally Posted by SevenUp View Post
TheFinanceBuff blog has a good description of a tool for just this situation: Roth Conversion and Capital Gains On ACA Health Insurance
@Exchme-->

I have Pralana Gold. It is a very useful tool. Despite the apparent complexity, only a handful of entries provided surprisingly close NW forecasts relative to my convoluted-multi-decade-evolved personal spreadsheet. I need to take the time to take it to the next level as you have.

One question I want to look at carefully is the results of Pralana Gold's recommended Roth Conversions when ACA subsidies are potentially available? What concerns me is the Finance Buff blog entry shows a marginal tax rate of up to 30+% even though the couple under analysis should be firmly in the 12% MFJ Tax Bracket. The loss of ACA subsidies is very expensive for this couple. Would be good to have an independent verification that Pralana's Roth Conversion Optimization takes such complexities into account.
DrBrisket is offline   Reply With Quote
Old 07-20-2021, 08:35 PM   #43
Recycles dryer sheets
 
Join Date: Jul 2014
Posts: 336
Quote:
Originally Posted by DrBrisket View Post
One question I want to look at carefully is the results of Pralana Gold's recommended Roth Conversions when ACA subsidies are potentially available? What concerns me is the Finance Buff blog entry shows a marginal tax rate of up to 30+% even though the couple under analysis should be firmly in the 12% MFJ Tax Bracket. The loss of ACA subsidies is very expensive for this couple. Would be good to have an independent verification that Pralana's Roth Conversion Optimization takes such complexities into account.
The marginal tax rates are real.

Does Pralana ask for your ACA information? If not, it's almost certain ACA effects aren't included. If it does ask, one would expect something in its output about Premium Tax Credits....
SevenUp is offline   Reply With Quote
Old 07-20-2021, 09:10 PM   #44
Recycles dryer sheets
 
Join Date: Jan 2017
Location: TX
Posts: 92
Quote:
Originally Posted by SevenUp View Post
The marginal tax rates are real.

Does Pralana ask for your ACA information? If not, it's almost certain ACA effects aren't included. If it does ask, one would expect something in its output about Premium Tax Credits....
100% agree the marginal rates are real. Painfully real in my own case.

WRT to Pralana Gold, it does allow you to input ACA information. You input SLCSP and the premium cost for your chosen ACA plan along with what years in your analysis to use ACA insurance. The manual states that when running its Roth conversion optimization, it will avoid The Dreaded Cliff if you are eligible for PTC. And, output tables show the projected PTC and out of pocket ACA premium costs. Pralana Gold gives a value to end of plan NW increase due to the recommended Roth Conversions.

So, there is a possibility that the Roth Conversion recommendations may be optimal given the user input that Pralana Gold is provided. However, with the depth of analysis the OP has done, is the OP truly satisfied Pralana Gold's recommended Roth conversions are actually optimal? Or, has the OP accepted Pralana Gold's Roth Conversion recommendations as correct without independent verification?
DrBrisket is offline   Reply With Quote
Old 07-20-2021, 09:17 PM   #45
Recycles dryer sheets
 
Join Date: Jul 2014
Posts: 336
Quote:
Originally Posted by DrBrisket View Post
The manual states that when running its Roth conversion optimization, it will avoid The Dreaded Cliff if you are eligible for PTC.
One would hope the software has been modified such that the 400% cliff is eliminated for 2021 and 2022. There's a phase-out starting at 400% but not a cliff - in 2021 and 2022, according to current law....
SevenUp is offline   Reply With Quote
Old 07-20-2021, 09:38 PM   #46
Recycles dryer sheets
 
Join Date: Aug 2017
Posts: 182
I'll use my example. What I used as a set point to see how much to remove from the tIRA was to analyze what my tax environment would be like post RMD. 12% is the best tax environment. I ran across some data I think at Fidelity that the median tIRA had about 500k meaning 500K is the most common amount. RMD + SS would provide the bulk of my ordinary income and I'm married FJ. 500K RMD's $19K at 72 combined SS is $54K of which 85% is taxable or 46K to net a taxable . If we take standard deduction our ordinary income is around 62K. The top end of standard deduction MFJ income is around 103K so I have about 41K of ordinary income to pay with before crossing into 22%. If SS inflates at 2.5% and I keep my tIRA at 500K my income will be 97K. (.85%*62K) + 34K)) still below the 22% threshold. About age 87 is when I will cross into 22%. So how do you keep the tIRA at 500K? RMD is required minimum, you can take more, so my tIRA is risked at about a 7% return. In good years I can take >RMD. In bad I can take just RMD. RMD is calculated on the total value of the tIRA's at the end of the year. I use this calculator. I estimate my taxes using this calculatorTax Plan Calculator by Maxim Lott

I did an analysis on taxes and in the main soak the rich starts at 22%, so the longer you can avoid 22% the better you are. This strategy keeps you in 22% ordinary income around 15 years.

To fund my Roth, I used some tax loss harvest and cashed in some brokerage stocks for a net 0% tax, basically turning my brokerage into a partial Roth. I live on cash. Therefore my only ordinary income is my Roth conversion. I have converted to the top of the 24% but find it much cheaper to keep conversions < $250K for various cliff and surcharge reasons. This gives you the greatest conversion for the least taxes.

In my case I retired at 65 which gave me 5 years of conversion which has now increased to 7 with CARES passage. The bulk of my conversions will be converted by this year. Next year I commence SS and so my conversion will take that income into account. The way I look at it is the government tends to leave the middle guy alone and soak the rich, so your job is to look like a middle guy. There is plenty of leeway to pull money out of other accounts as needed. My Roth money is most sacred as it provides the basis of self insurance in case someone strokes or needs memory care. tIRA + SS pays for hamburgers and electricity. It has a bonus variable based on how the market does. Other needs, like a new car or travel are provided by brokerage since cap gains are relatively low. After you've been to Europe of Asia a couple times it looses its luster.

The government already owns those taxes in the tIRA and you're going to have to pay. The way the the system is rigged as you age taxes go up and RMD goes up, so each year more for Sam and less for you. Also once I die, my wife will likely kick up only one tax bracket instead of 3.
Doc0 is offline   Reply With Quote
Old 07-21-2021, 06:42 AM   #47
Recycles dryer sheets
 
Join Date: Oct 2020
Posts: 262
Quote:
Originally Posted by DrBrisket View Post
100% agree the marginal rates are real. Painfully real in my own case.

WRT to Pralana Gold, it does allow you to input ACA information. You input SLCSP and the premium cost for your chosen ACA plan along with what years in your analysis to use ACA insurance. The manual states that when running its Roth conversion optimization, it will avoid The Dreaded Cliff if you are eligible for PTC. And, output tables show the projected PTC and out of pocket ACA premium costs. Pralana Gold gives a value to end of plan NW increase due to the recommended Roth Conversions.

So, there is a possibility that the Roth Conversion recommendations may be optimal given the user input that Pralana Gold is provided. However, with the depth of analysis the OP has done, is the OP truly satisfied Pralana Gold's recommended Roth conversions are actually optimal? Or, has the OP accepted Pralana Gold's Roth Conversion recommendations as correct without independent verification?
My knowledge of Pralana Gold is much better than my knowledge of ACA subsidies. Pralana Gold does limit Roth Conversions to get the ACA subsidies it calculates for you and if you ask for big Roth Conversions. I have not verified that it is doing it optimally.

Their web page says they have implemented the SECURE act changes, which would include the 2021/2022 cliff change to slope.
Exchme is online now   Reply With Quote
Old 07-21-2021, 06:56 AM   #48
Recycles dryer sheets
 
Join Date: Oct 2020
Posts: 262
Quote:
Originally Posted by Doc0 View Post
I'll use my example. What I used as a set point to see how much to remove from the tIRA was to analyze what my tax environment would be like post RMD. 12% is the best tax environment. I ran across some data I think at Fidelity that the median tIRA had about 500k meaning 500K is the most common amount. RMD + SS would provide the bulk of my ordinary income and I'm married FJ. 500K RMD's $19K at 72 combined SS is $54K of which 85% is taxable or 46K to net a taxable . If we take standard deduction our ordinary income is around 62K. The top end of standard deduction MFJ income is around 103K so I have about 41K of ordinary income to pay with before crossing into 22%. If SS inflates at 2.5% and I keep my tIRA at 500K my income will be 97K. (.85%*62K) + 34K)) still below the 22% threshold. About age 87 is when I will cross into 22%. So how do you keep the tIRA at 500K? RMD is required minimum, you can take more, so my tIRA is risked at about a 7% return. In good years I can take >RMD. In bad I can take just RMD. RMD is calculated on the total value of the tIRA's at the end of the year. I use this calculator. I estimate my taxes using this calculatorTax Plan Calculator by Maxim Lott

I did an analysis on taxes and in the main soak the rich starts at 22%, so the longer you can avoid 22% the better you are. This strategy keeps you in 22% ordinary income around 15 years.

To fund my Roth, I used some tax loss harvest and cashed in some brokerage stocks for a net 0% tax, basically turning my brokerage into a partial Roth. I live on cash. Therefore my only ordinary income is my Roth conversion. I have converted to the top of the 24% but find it much cheaper to keep conversions < $250K for various cliff and surcharge reasons. This gives you the greatest conversion for the least taxes.

In my case I retired at 65 which gave me 5 years of conversion which has now increased to 7 with CARES passage. The bulk of my conversions will be converted by this year. Next year I commence SS and so my conversion will take that income into account. The way I look at it is the government tends to leave the middle guy alone and soak the rich, so your job is to look like a middle guy. There is plenty of leeway to pull money out of other accounts as needed. My Roth money is most sacred as it provides the basis of self insurance in case someone strokes or needs memory care. tIRA + SS pays for hamburgers and electricity. It has a bonus variable based on how the market does. Other needs, like a new car or travel are provided by brokerage since cap gains are relatively low. After you've been to Europe of Asia a couple times it looses its luster.

The government already owns those taxes in the tIRA and you're going to have to pay. The way the the system is rigged as you age taxes go up and RMD goes up, so each year more for Sam and less for you. Also once I die, my wife will likely kick up only one tax bracket instead of 3.
Yes, the 12% tier is super attractive and people should really try to fill it up. Most of us do our planning assuming lower than average market returns to make sure we aren't too optimistic, but if the market delivers just its average of 7% real return on stocks, folks that missed out on filling the 12% bracket will kick themselves.
Exchme is online now   Reply With Quote
Old 07-21-2021, 07:16 AM   #49
Recycles dryer sheets
 
Join Date: Mar 2019
Posts: 135
Quote:
Originally Posted by pb4uski View Post
As we have often discussed, if you're converting today at 22% to avoid 24% later then there isn't much punch to Roth conversions, but if you're converting and paying 12% today to avoid 22% later then it is a whole different story.
Or, in our case, I can make a partial conversion and pay ZERO income tax this year and every year until RMDs kick in where we'd probably pay 12%. Is it life changing? No. Is it worth it? Hell, yes. It's free money.


As for asset allocations, unless you are doing something esoteric it is quite simple to maintain nearly identical asset allocations in a tIRA and a Roth IRA. I don't see a problem.
jldavid47 is offline   Reply With Quote
Old 07-21-2021, 08:10 AM   #50
Recycles dryer sheets
 
Join Date: Feb 2021
Location: Puget Sound
Posts: 499
That is where we are at. Fill the 12% bracket till it goes away. if it doesn't, we can convert 90% of tIRA to Roth by the time I get to max SS at 70. Then we won't have the income headroom any more. All the tIRAs are my wife's who is younger.
It truly is a gift and a no brainer for us.
__________________
Class of 2023
skyking1 is offline   Reply With Quote
Old 07-21-2021, 08:27 AM   #51
Full time employment: Posting here.
googily's Avatar
 
Join Date: Jul 2013
Posts: 632
I had zero Roth three years ago, so even though I'm still working, I have converted about $230k (edited). Have mentioned many times elsewhere about being widowed, RMDs+pensions+SS looking like it would be a big tax hit, unlikely to really be in a low bracket at any point in retirement, etc.

I have taken a different mental approach, though. If my employer came to me and said, "we want to give you a raise and you can put every penny of it in Roth, but you have to pay taxes on it," would I turn them down? I'm already in the 24% bracket, so my "raise" doesn't push me into a higher bracket.

As someone said upthread, some of this is so that I can have a tax free pot of money at the ready if I am wanting to make a big withdrawal from my IRA but don't want to get pushed into 32%.

Plus, given the run up of the past few years, that's a nice pile of proceeds that I'm not paying any tax on, compared to if my "raise" just went into my taxable account.

Mental gymnastics, I know, but I don't regret making a push even while still working to go from 0% Roth monies to 11%.
googily is offline   Reply With Quote
Old 07-21-2021, 08:33 AM   #52
Moderator
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 8,354
Quote:
Originally Posted by SevenUp View Post
One would hope the software has been modified such that the 400% cliff is eliminated for 2021 and 2022. There's a phase-out starting at 400% but not a cliff - in 2021 and 2022, according to current law....
My Roth strategy has been very easy to optimize: convert to just shy of the cliff. Sounds like Pralana's rules agree. Now it's getting a little more challenging, but I figure I'll do what I always do...buy the tax software in November and do a sensitivity analysis. Maybe dial it up to 22% and call it a day. The sharpest point I've had on this calculation was running i-orp, and I learned that the difference between doing the basics vs anything else I tried didn't make that much difference, so I'm doing the basics.
sengsational is offline   Reply With Quote
Old 07-25-2021, 02:49 AM   #53
Confused about dryer sheets
 
Join Date: Nov 2012
Posts: 9
Quote:
Originally Posted by Exchme View Post
When you look at the overall asset allocation and hold different things in different places, you should ideally correct for the fact that the government owns a share of whatever is in tax deferred.
….
(Snipped)

The bonds belonging to the government hiding in tax deferred can be found by:
% of total savings that is tax deferred
x % bonds in tax deferred
x %marginal tax bracket
I haven’t seen enough discussion about how the government’s share of tax-deferred funds is not actually fixed. That “share” can actually go down to zero or relatively little in years where there are high tax deductions for medical care, like for residential care (which I recently read will eventually apply to 70% of Americans over 65). Even some of the cost of assisted living costs can be deductible when part of the fee is certified by the facility to have been used for medically necessary assistance.

The federal government’s share of a partial conversion from a tax-deferred account to a Roth account can also be zero or low during years of low taxable income.

(As most of my income is dividends but I’ve been paying high health insurance premiums and other tax deductions, I’ve had many years when I was in the 0% tax rate——and could have done partial conversions during those years with 0% federal tax, but the marginal tax rate from the state would have been about 9%.)

I’m personally wondering how much to leave in tax-deferred accounts to cover the cost of health-related expenses. At age 62, I have about $170,000 presently in tax-deferred accounts (with much more in taxable accounts) and should perhaps *not* do any more Roth conversions at all (since I do have to pay state tax on them). In the years to come where I have high medical expenses, I could conceivably purposefully withdraw some funds from my tax-deferred accounts to pay for or offset those expenses, and those expenses would then be free of both federal and state taxes.

So part of the potential drawback of doing Roth conversions is paying federal and/or state taxes unnecessarily on tax-deferred funds, depending on how much is being held in those funds, if we would have been likely to need to put those tax-deferred funds to use for tax-deductible expenses.

For example, say you end up having to pay for $60,000 or $70,000 worth of residential care annually in your late 70’s, and there are additional medical expenses as well. Using RMDs and perhaps additional funds from tax-deferred accounts would be very useful for covering the portion that is deemed to be for medical assistance.

Has anyone seen an analysis of how much we should leave in tax-deferred accounts to pay for health care costs down the road? I read elsewhere that one person was planning to leave $300,000 in his tax-deferred account, but not whether this was based on any research.
LoisLane is offline   Reply With Quote
Old 07-25-2021, 05:06 AM   #54
Recycles dryer sheets
 
Join Date: Dec 2016
Posts: 230
Quote:
Originally Posted by LoisLane View Post
I haven’t seen enough discussion about how the government’s share of tax-deferred funds is not actually fixed. That “share” can actually go down to zero or relatively little in years where there are high tax deductions for medical care, like for residential care (which I recently read will eventually apply to 70% of Americans over 65). Even some of the cost of assisted living costs can be deductible when part of the fee is certified by the facility to have been used for medically necessary assistance.

The federal government’s share of a partial conversion from a tax-deferred account to a Roth account can also be zero or low during years of low taxable income.

(As most of my income is dividends but I’ve been paying high health insurance premiums and other tax deductions, I’ve had many years when I was in the 0% tax rate——and could have done partial conversions during those years with 0% federal tax, but the marginal tax rate from the state would have been about 9%.)

I’m personally wondering how much to leave in tax-deferred accounts to cover the cost of health-related expenses. At age 62, I have about $170,000 presently in tax-deferred accounts (with much more in taxable accounts) and should perhaps *not* do any more Roth conversions at all (since I do have to pay state tax on them). In the years to come where I have high medical expenses, I could conceivably purposefully withdraw some funds from my tax-deferred accounts to pay for or offset those expenses, and those expenses would then be free of both federal and state taxes.

So part of the potential drawback of doing Roth conversions is paying federal and/or state taxes unnecessarily on tax-deferred funds, depending on how much is being held in those funds, if we would have been likely to need to put those tax-deferred funds to use for tax-deductible expenses.

For example, say you end up having to pay for $60,000 or $70,000 worth of residential care annually in your late 70’s, and there are additional medical expenses as well. Using RMDs and perhaps additional funds from tax-deferred accounts would be very useful for covering the portion that is deemed to be for medical assistance.

Has anyone seen an analysis of how much we should leave in tax-deferred accounts to pay for health care costs down the road? I read elsewhere that one person was planning to leave $300,000 in his tax-deferred account, but not whether this was based on any research.
While I'm not sure that such research would be useful (after all, we can get "population" statistics but that's not really appropriate for an individual) there is info on median lengths of stays in various assisted living, etc.
In general, while the length of stay in nursing home (skilled care) was only about two years... I'd plan on what it would take for five years... determine what your income would still be from SS /pension to get residual number that would be needed

{ex, $140 k pa for care less $24 k SS and $16 k pension results in $100 k pa need... thus half mil for five years }

[hmmm, from your post indicating 9% tax... seems to imply Oregon... hope you are doing well from the fires]
FI_RElater is online now   Reply With Quote
Old 07-25-2021, 05:38 AM   #55
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,146
Quote:
Originally Posted by LoisLane View Post

Has anyone seen an analysis of how much we should leave in tax-deferred accounts to pay for health care costs down the road?
I thought about this, but it seems like any benefit of leaving some money in tax deferred is offset by the number of early years of RMDs where I wouldn't have the expenses to write off. I haven't analyzed the numbers, and of course it's a guess to know what age I might need help. My mother needed memory care at 84, my father is 87 and is still in independent living. The delay of RMDs to age 72 helps a little, but that still is a lot of years of paying tax on RMDs.

An alternate plan to compare is to sell highly appreciated funds to pay the managed care costs. I have plenty where 75% of the proceeds are gains that will be taxed at LTCG rates and can be written off with medical expense deductions. I haven't run those numbers either, but this has the advantage that you can wait and take income if/when you need it, rather than RMDs forcing you to take some extra income.
RunningBum is offline   Reply With Quote
Old 07-25-2021, 06:08 AM   #56
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jan 2018
Location: Tampa
Posts: 8,393
Quote:
Originally Posted by LoisLane View Post
I haven’t seen enough discussion about how the government’s share of tax-deferred funds is not actually fixed. That “share” can actually go down to zero or relatively little in years where there are high tax deductions for medical care, like for residential care (which I recently read will eventually apply to 70% of Americans over 65). Even some of the cost of assisted living costs can be deductible when part of the fee is certified by the facility to have been used for medically necessary assistance.

The federal government’s share of a partial conversion from a tax-deferred account to a Roth account can also be zero or low during years of low taxable income.

(As most of my income is dividends but I’ve been paying high health insurance premiums and other tax deductions, I’ve had many years when I was in the 0% tax rate——and could have done partial conversions during those years with 0% federal tax, but the marginal tax rate from the state would have been about 9%.)

I’m personally wondering how much to leave in tax-deferred accounts to cover the cost of health-related expenses. At age 62, I have about $170,000 presently in tax-deferred accounts (with much more in taxable accounts) and should perhaps *not* do any more Roth conversions at all (since I do have to pay state tax on them). In the years to come where I have high medical expenses, I could conceivably purposefully withdraw some funds from my tax-deferred accounts to pay for or offset those expenses, and those expenses would then be free of both federal and state taxes.

So part of the potential drawback of doing Roth conversions is paying federal and/or state taxes unnecessarily on tax-deferred funds, depending on how much is being held in those funds, if we would have been likely to need to put those tax-deferred funds to use for tax-deductible expenses.

For example, say you end up having to pay for $60,000 or $70,000 worth of residential care annually in your late 70’s, and there are additional medical expenses as well. Using RMDs and perhaps additional funds from tax-deferred accounts would be very useful for covering the portion that is deemed to be for medical assistance.

Has anyone seen an analysis of how much we should leave in tax-deferred accounts to pay for health care costs down the road? I read elsewhere that one person was planning to leave $300,000 in his tax-deferred account, but not whether this was based on any research.
Was also wondering about this concept.
Using one example, my parents will have about 120k of unreimbursed medical expenses this year, as my father who is 91 y.o. has 24/7 home care.
Between SS/Pensions/Investment income and natural RMD distributions, the sum is already 140k.
Thus I was wondering if they should take more RMD's to maximize lower brackets this year, plus expected future years.
The TIRA balances are 490k.
__________________
TGIM
Dtail is offline   Reply With Quote
Old 07-25-2021, 06:55 AM   #57
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,146
Quote:
Originally Posted by Dtail View Post
Was also wondering about this concept.
Using one example, my parents will have about 120k of unreimbursed medical expenses this year, as my father who is 91 y.o. has 24/7 home care.
Between SS/Pensions/Investment income and natural RMD distributions, the sum is already 140k.
Thus I was wondering if they should take more RMD's to maximize lower brackets this year, plus expected future years.
The TIRA balances are 490k.
Run the numbers in a tax calculator. Don't forget the first 7.5% of income is subtracted from medical expenses. So that's $140K income - $110K medical deduction = $30K income, in my obviously very rough tax calc. Probably worth taking them to the top of 12% or where QDivs start being taxed but you should look at it closer than my 5 minute estimate with limited info.

I think people sometimes see $100K of income and $100K of medical and think they'll have $0 taxable income. Not quite, because of that 7.5%, which btw means as you add income, a little bit less (7.5%) of the medical expenses are deductible.
RunningBum is offline   Reply With Quote
Old 07-25-2021, 07:20 AM   #58
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jan 2018
Location: Tampa
Posts: 8,393
Quote:
Originally Posted by RunningBum View Post
Run the numbers in a tax calculator. Don't forget the first 7.5% of income is subtracted from medical expenses. So that's $140K income - $110K medical deduction = $30K income, in my obviously very rough tax calc. Probably worth taking them to the top of 12% or where QDivs start being taxed but you should look at it closer than my 5 minute estimate with limited info.

I think people sometimes see $100K of income and $100K of medical and think they'll have $0 taxable income. Not quite, because of that 7.5%, which btw means as you add income, a little bit less (7.5%) of the medical expenses are deductible.
Yeah was kind of thinking that too.
~67% of their market exposure is also in the TIRA's and all their market exposure is in deferred type accounts, so would need to deploy the monies from a taxable account going forward to keep the same exposure.

Then of course there is the unknown "end date", as to depleting the TIRA but still having ongoing unusable deductions.
__________________
TGIM
Dtail is offline   Reply With Quote
Old 07-25-2021, 08:43 AM   #59
Thinks s/he gets paid by the post
Out-to-Lunch's Avatar
 
Join Date: Jan 2020
Location: Milwaukee
Posts: 1,285
Quote:
Originally Posted by LoisLane View Post


I’m personally wondering how much to leave in tax-deferred accounts to cover the cost of health-related expenses. At age 62, I have about $170,000 presently in tax-deferred accounts (with much more in taxable accounts) and should perhaps *not* do any more Roth conversions at all (since I do have to pay state tax on them).

[snip]

Has anyone seen an analysis of how much we should leave in tax-deferred accounts to pay for health care costs down the road? I read elsewhere that one person was planning to leave $300,000 in his tax-deferred account, but not whether this was based on any research.
Yes, this is a very good question! Of course, a lot depends on other factors, like the size of one's nest egg and where it is located. Most (~70%) of my money is in tax-deferred accounts. I have not done a rigorous analysis, but, after taking a SWAG, we decided to leave ~$500k (out of ~$2M) in tax-deferred for possible medical expenses and charitable giving.

Factors assessed included how big the RMDs would be with that much left in TDA, and also what it would take to Roth-convert the balance. I also freely admit that the number "500" (rather than "300" or "700") might be related to the number of fingers I have on one hand.

But I would like to assess this more carefully. If you come across anything worth considering, please bring it to our attention.
__________________
The closing years of life are like the end of a masquerade party, when the masks are dropped. -Arthur Schopenhauer, philosopher (1788-1860)
Out-to-Lunch is offline   Reply With Quote
Old 07-25-2021, 09:15 AM   #60
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 11,692
Quote:
Originally Posted by Dtail View Post
Was also wondering about this concept.
Using one example, my parents will have about 120k of unreimbursed medical expenses this year, as my father who is 91 y.o. has 24/7 home care.
Between SS/Pensions/Investment income and natural RMD distributions, the sum is already 140k.
Thus I was wondering if they should take more RMD's to maximize lower brackets this year, plus expected future years.
The TIRA balances are 490k.
Run it by a tax program, but the answer is YES. How much more is the key.

Rough thinking:
Currently income $140K + (add in 50K for fun)
Deductions: Married = $25K , medical (reduced by 190x.075 = 14.25K) is $105.75K deduction.

So net values is $190K income - $130.75 deductions = $59.25K taxable income the marginal rate is well within 12%

Without the medical deduction they are well into the 22% bracket

So my simple example would save paying at least $5K taxes on that $50K assuming it gets withdrawn in the future.
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 2 (0 members and 2 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Detailed spreadsheets from result page in REAL terms or NOMINAL terms?? FUEGO FIRECalc support 1 04-03-2011 05:21 AM
2 Different Spending Models but Same Result...What Up? pinot FIRECalc support 8 06-03-2010 08:23 AM
Shouldn't Rebalancing Result in Higher Returns? ejman FIRE and Money 26 08-28-2008 03:26 AM
A surprising research result...and still no cure for cancer... cute fuzzy bunny Other topics 13 08-01-2007 04:44 PM
Bragging about work stuff - SS Disability-good result! Fireup2020 Other topics 7 05-27-2007 09:30 AM

» Quick Links

 
All times are GMT -6. The time now is 08:15 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.